The view from Athens: more pain, then gain for the euro

Even at the best of times, currency speculation is not for the faint of heart or thin of wallet. And these are far from the best of times for those who play on the market's swings.

In the face of rock-bottom interest rates, uncertain economic conditions and the risk of further government intervention, the hot money doesn't seem to know which way to turn. The latest hot or cold currency can suddenly switch directions for reasons that have nothing to do with underlying economic fundamentals or long-term prospects.

For weeks, a bet against the euro was looking pretty good - until the Greeks and Portuguese met a warm reception for their bonds and European policy makers made it clear they wouldn't hang any spendthrift members of the family out to dry. The result: After losing about 10 per cent of its value against the less-than-robust greenback since the beginning of the year, the euro began making up lost ground last week.

For many players, it's a matter of searching for currencies that seem the least unappetizing. That includes those likely to benefit soon from rising interest rates, which explains why the Canadian dollar was being lumped in with the Malaysian ringgit and Indonesian rupiah on buyers' lists last week. Even the Russian ruble has been flying high lately, proving that currency gamblers, like investors in sovereign foreign bonds, have really short memories. To try to get a fix on this most difficult of markets, we called on currency specialist Leon Yohai.

Mr. Yohai runs a growing online trading site called ZuluTrade, which accounts for close to $5-billion (U.S.) worth of trades a month. Zulu is essentially a social networking arena for small-time currency speculators - "the Napster of FX [foreign exchange]trading," in Mr. Yohai's description. Which affords him a pretty good view of where the money is flowing.

He also happens to be based in Athens, which gives him a front-row seat for the daily demonstrations, work stoppages and general expressions of outrage against the latest austerity measures forced upon the Greek government by its own previously unchecked profligacy.

So it's not surprising that Mr. Yohai falls into the camp of the euro skeptics or that he's shorting the currency. What is perhaps surprising is that he expects the Greek protests will soon run out of steam, that other problem euro-zone members will get their own fiscal messes sorted out and that the euro will survive the turmoil. His other good news is that he has very few Greek customers.

Resolving the country's fiscal nightmare will be a painful, slow process of several years, he said the other day from the epicentre of the mess. But he rejects the notion that the euro's woes can be laid at Greece's door. "Greece was not the cause. It was just the spark."

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Every country in the euro zone is beset by a variety of economic or fiscal problems, including Germany, he says.

So no one should expect an immediate resuscitation of the long overvalued currency, which has been badly tarnished and faces a further correction. "I don't think the euro is going to have a better image in the next year or two."

But the veteran trader quickly adds: "With currencies, you cannot predict anything" apart from short-term moves.

At one time, currency trading was largely the preserve of commercial interests. Today, speculators, including multibillion-dollar hedge funds and other institutional investors, hold sway.

At the retail level, it's the intermediaries handling the action who generally score the most profit.

But Mr. Yohai insists he has come up with a creative solution for the ordinary player. Essentially, the individual's existing account is linked with those of all other participants. People can monitor the techniques and performance of other traders, select the ones they would like to emulate and set up programs that automatically duplicate their chosen expert's trades.

Mr. Yohai first came to foreign exchange trading as a hobby. In his own trades, he sticks to four or five major currencies, including his current favourite pairing: shorting the euro and going long on the greenback.

He has been watching money flowing back into the U.S. currency for defensive reasons, and sees that trend continuing, rising at least another 8 cents against the euro, to about $1.29.

Does the euro have a long-term future? His response is a resounding yes. Just don't put any money on it for a while yet.